If you want to become rich, check out this mutual funds investment, say experts

Tips to become rich: Mutual fund investments are subject to market risk and when it comes to small-cap schemes, the risk appetite is highest.

Tips to become rich: Small-cap mutual fund schemes are the equity-oriented mutual fund schemes which have to invest at least 80 per cent of their corpus in small companies. Photo: Reuters

Tips to become rich: Mutual funds investment is subject to market risk and when it comes to small-cap schemes, the risk appetite is highest. However, those mutual fund investors, who want to achieve their investment goals, small-cap funds can be looked at as they offer the potential of generating a big return, even as they also have high risk potential. According to the tax and investment experts, a small-cap mutual fund would give at least 12 per cent returns if the investment is for long-term means more than 10 years.

Speaking on why risk appetite in the small-cap mutual funds are high and how does it suit those investors who invest with long-term perspective in focus Kartik Jhaveri, Manager — Wealth Management at Transcend Consultants said, "Small-cap mutual fund schemes are the equity-oriented mutual fund schemes which have to invest at least 80 per cent of their corpus in small companies. The Securities and Exchange Board of India or SEBI has defined small companies as companies that are other than the top 250 listed companies in terms of market capitalisation. So, any scheme which invests and remains invested at least up to 80 per cent of its corpus in these companies are categorised as small-cap funds and they are free to deploy their balance 20 per cent in anywhere whether in debt funds or companies from top 250 companies."

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Elaborating upon how does a small-cap mutual fund helps an investor achieve one's long-term investment goals Jitendra Solanki, a SEBI registered tax and investment expert said, "The choice of a particular product has to be based on various factors and not necessarily your time horizon for investing the money. So in case, your risk appetite is low, the small-cap category is not for you. Likewise, your ability to take a risk also is important for determining the product in which you should invest. At the start of your career, your ability to take risk is far higher than once you have crossed your 50 years of age. Please note that the risk appetite an ability t take are two different things. They are indeed volatile and risky in the short term, but they have the potential to offer superior returns over a long period. Small-cap mutual fund schemes are meant for aggressive equity investors who can stomach a lot of volatility and risk."

Expressing his views on the risk factor involved in small-cap mutual fund schemes Jhaveri added, "Because of their investment universe, small-cap mutual fund schemes are extremely risky. They can be beaten down drastically in a sharp fall in the stock market or on the slightest bout of volatility. But small-cap mutual fund schemes also have the potential to offer superior returns over a long period. This is because small-cap schemes bet on small companies with very high growth potential. When a small company becomes a very large company, the shares of the company would appreciate multiple."

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